Even a fifth consecutive year of record global corn harvests will fail to meet demand for food, fuel and livestock feed, reducing world stockpiles to the lowest in two generations.
Consumption will rise 3 percent in the next marketing year, a 16th consecutive annual gain that saw demand jump 66 percent, according to U.S. Department of Agriculture estimates. Inventory will drop to 47 days of use, the fewest since 1974, the data show. Waterlogged fields in the U.S., the largest exporter, will curb yields, Goldman Sachs Group Inc. says. Corn may jump 36 percent to a record $9 a bushel if conditions worsen, Morgan Stanley says.
Corn purchases are accelerating as droughts and floods limit output gains in everything from soybeans to wheat, driving the Standard & Poor’s Agriculture Index of eight commodities 60 percent higher in 12 months. China, the world’s second-biggest consumer after the U.S., will use 47 percent more than a decade ago, adding an amount greater than the entire crop of Brazil, the third-largest producer.
“There is a storm developing in agriculture,” said Jean Bourlot, global head of commodities at UBS AG in London. “If we have the slightest disruption in any part of the world, the effect on the price will be considerable.”
Corn has risen 5 percent in Chicago this year, even after dropping 7.4 percent last week to close at $6.60 on June 17. Today, the grain settled at $6.605, up 0.5 cent. Prices averaged about $7.02 since Dec. 31, headed for the highest annual average ever. While investors should be cautious for now, “long term, I think $6 to $7 is a normal price,” Bourlot said. Costs are rising for Tyson Foods Inc. (TSN), the biggest U.S. meat processor, and ethanol maker Archer Daniels Midland Co.
Commodity Index
The S&P GSCI index of 24 commodities advanced 5.6 percent this year, and the MSCI World Index of equities was unchanged. Treasuries returned 3.2 percent, a Bank of America Merrill Lynch index shows.
Global production will rise 5.6 percent to 866.2 million metric tons in 2011-2012, still too little to meet demand of 871.7 million tons, according to the USDA, which combines variable local marketing years for its estimates.
China’s pork consumption doubled in the past two decades and demand for chicken quadrupled, the USDA estimates, boosting requirements for grain-based animal feed. Surging energy prices and subsidies spurred ethanol production, with the U.S. industry using seven times more corn than 10 years ago.
“For the livestock industry, the ethanol industry, and the food industry, it’s going to be a food fight,” said John Cory, the chief executive officer of Rochester, Indiana-based Prairie Mills, which processes corn meal and corn flour. “Any kind of weather problems are really going to be a significant problem.”
U.S. Farmers
Corn fell last week as drier weather enabled U.S. farmers to complete about 99 percent of expected plantings by June 12. A total of 69 percent of crops were in good or excellent condition. Above-average prices will spur farmers to keep sowing even if it means lower yields, Goldman Sachs said in a report June 13. The USDA will release its next acreage and inventory estimates on June 30.
South American producers will also grow more, said Lawrence Kane, a market adviser at Stewart-Peterson Group in Yates City, Illinois. Corn planting starts in September in Argentina and a month later in Brazil.
Demand may not expand as fast as anticipated by the USDA as economic growth weakens. Indexes tracking manufacturing in the New York and Philadelphia regions contracted this month, reports last week showed. Japan entered its third recession in a decade, and the Australian economy shrank the most in 20 years in the first quarter. China raised bank-reserve requirements to a record last week to cool the fastest inflation in three years. (more)
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